On facility fees and virtual visits

Hospitals have a lot of overhead. The buildings are large, the staff expensive (especially for 24/7 emergency capabilities), and the equipment specialized.

I think most people in the U.S. have a sense that hospitals are expensive, and they grit their teeth and wait for the bills to start coming a few months after a stay. But what people aren’t expecting is a cascade of hospital bills tied to virtual visits.

Recently, Children’s Hospital Colorado charged an $847 facility fee, on top of a bill of more than $650, for a child’s video visit. The child’s mother told a local Colorado station:¹

I was like, ‘Facility fee? I didn’t go to your facility. I was at home, and as far as I could tell, some of the doctors were at home too.’

This bill is interesting for a few reasons, not least of which was the hospital’s surprisingly blasé response to a local Colorado station that asked for comment (emphasis mine):

This is not exclusively a Children’s Colorado issue, and we suggest that you speak to other providers, insurers and legislators to provide a broader perspective on the system that governs how we all operate. We want affordable and accessible care for all of our patients, and we continually look at our own practices to see where we can adjust and improve while at the same time we work to build a functioning system of care for kids. We agree that insurance coverage, healthcare fees and health costs in general can be confusing and frustrating to navigate, and don’t always make sense. To that end, we continue to advocate for state and federal policies that address healthcare consumer cost concerns through more affordable and accessible insurance coverage and hospital and provider price transparency, while also defending children’s access to care and the unique needs of a pediatric hospital.

The Colorado bill is also interesting because it is a facility fee, or an additional amount that a health system charges to patients receiving care on the hospital’s premises, to cover the overhead. (As is relevant here, hospitals sometimes charge facility fees for their outpatient departments, also called HOPDs, meaning you don’t have to receive emergency or inpatient care to get hit with a facility fee.)

The rise of facility fees

Over time, hospitals have leveraged their size and expense to charge additional fees for their services, even for outpatient procedures that are performed equally well within the hospital or in independent offices.

💡Side note: Hospitals get reimbursed by Medicare for outpatients through the Hospital Outpatient Prospective Payment System, while non-hospital providers are reimbursed by Medicare for outpatients through the Medicare Physician Fee Schedule. OPPS generally reimburses more.

In recent years, there has been a push towards “site neutral payments,” or reimbursing for the same service regardless of where it is performed. Hospitals have pushed back hard on this policy, arguing that their higher overhead costs justify the increased rates. In June 2021, the Supreme Court declined to hear the health system lobby’s appeal against site neutral payments, meaning site neutral payments are now likely to be implemented.

Facility fees are a fairly recent addition to the hospital financial pantheon. Prior to the year 2000, facility fees existed but weren’t prevalent enough to pierce the public consciousness. Then, in April 2000, CMS clarified that the agency had no power to stop health systems from charging facility fees for HOPDs after purchase by the health system. This move, in combination with an August 2000 policy change that reimbursed treatment provided at HOPDs under the better-paid OPPS schedule, began incentivizing health systems to acquire more HOPDs—and to charge more facility fees. (As with many health policy shifts, Medicare set the policy and hospitals began applying it to most payers; hospitals charge facility fees to privately insured patients as well.)

A few years later, facility fees were prevalent enough to provoke a class action lawsuit that claimed a Seattle hospital was violating a state consumer protection law by charging the fees. The hospital settled in 2006 by refunding facility fees it had levied. Notably, the settlement didn’t require the hospital to stop charging the fees. Instead, it required that the hospital make the presence of such fees clearer to patients—as long as the patient asked.

Facility fees began cropping up in the news even more around 2009, as hospitals began charging more. At the time, a billing consultant estimated for KHN that facility fees could bring in an additional $30,000 per year per physician.

Hospitals also entrenched their argument in favor of facility fees. The American Hospital Association has begun arguing that facility fees are essential to keeping the emergency room lights on. (Opponents of facility fees argue that hospitals are already reimbursed enough to cover the overhead—not only does OPPS reimburse more than the Medicare Physician Fee Schedule, but most hospitals are nonprofits and therefore don’t pay most taxes, and quite a few hospital systems find it in their budgets to build shiny new wings.)

In 2015, Connecticut became perhaps the only state to take action against facility fees by passing a bill requiring providers to disclose facility fees upfront. (Connecticut providers still charge facility fees—but there is more transparency.)

How is this related to telehealth?

When the pandemic hit and everyone rushed to use telehealth, many of the major insurers declared that telehealth fees would be waived. Of course, the implementation went less than smoothly; not only were some patients unexpectedly charged, but the promise by insurers elided how little control they have over all telehealth fees (as Kaiser Health News points out, insurers simply couldn’t promise waived copays for the self-insured employers who use the major insurers as third party administrators). 

Now that we’re equilibrating with endemic COVID, promises of free telehealth are dropping away. And instead, telehealth fees are getting more complicated and onerous. One of the ways hospitals are charging more is by applying facility fees to telehealth visits.

“The charges seem crazy. It rankles, and it should,” Ted Doolittle, the head of Connecticut’s Office of the Healthcare Advocate, told Kaiser Health News regarding the Colorado Children’s Hospital telehealth facility fee. 

The fees especially rankle given that the doctors in the Colorado case appear to have been at home (and therefore no one involved was actually using a facility) and because hospitals are just now beginning to figure out telehealth workflows. In other words, there’s no sophisticated equipment involved, but hospitals are charging like there is.

Are these fees here to stay?

As egregious as the Colorado case is, it’s unclear if facility fees for telehealth will become as embedded in American healthcare as facility fees for in-person care became. Kaiser Health News, for example, found data suggesting that facility fees for telehealth visits for patients with private insurance averaged $55 for June 2020-June 2021. In addition, 1.1% of telehealth claims included a facility fee, lower than a 2.5% rate in 2019. In other words, these fees feel onerous, but they don’t seem to be very prevalent.

Of course, that could change. Connecticut has taken the lead on trying to prevent facility fees becoming standard for telehealth; a COVID-era bill explicitly prohibited health systems from charging facility fees for telehealth appointments (at least until the bill expires in mid-2023). However, the law didn’t stop one Connecticut hospital from charging a facility fee; the hospital only dropped the fee after the patient complained on Twitter and found out about Connecticut’s ban.

Other states could take Connecticut’s approach, or (more likely) they’ll wait and see what happens. If I had to guess, hospitals seem most likely to start charging nominal facility fees for telehealth, justifying them as the cost to set up the technological infrastructure, and then continuing to charge the fees even after that infrastructure has been paid off. (See: The Pennsylvania Turnpike, which was supposed to have tolls only until the bonds were paid off, and which now charges between $40 and $80 to cross the state.) 

One other thought I had: In a perfect, cost-sensitive healthcare world, the facility fees of hospitals could act as a nudge to push patients toward cheaper care sites. Unfortunately, we don’t live in that world. We live in a world where hospitals are charging IRL prices for virtual care.

This information shouldn’t be taken as investment advice (obviously), and the opinions expressed are entirely my own, not representative of my employer or anyone else.

1. While the Colorado child’s mother referred to this as a surprise bill—and it was, in the literal sense of the phrase—it wasn’t an actual “surprise bill.” Those occur when out-of-network providers bill patients at out-of-network rates for care they didn’t choose to receive (as in an emergency, or during a surgery). True surprise bills are covered by the No Surprises Act that came into effect with the start of 2022, and which provides a process for determining the rate at which these providers should be reimbursed.